The roots of America’s financial crisis can be traced back to 2007, when the U.S. housing bubble burst. This sent the dominos tumbling and the United States into an economic meltdown in 2008. Despite government intervention, the economy has sputtered and slipped in and out of recession.

What most investors and analysts failed to realize as the bubble burst for the housing market is that much of the U.S. economy—millions of jobs—are related to the real estate market.

Since 2001, readers have turned to Michael Lombardi’s famous daily economic newsletter Profit Confidential for stock market guidance. Analyzing the real estate market is of utmost importance to figuring out where our general economy is headed.

In our daily Profit Confidential e-letter, we regularly comment on the U.S. housing market and the real estate market. Is it time to buy real estate? Where are housing prices headed?

In a June 6, 2005 Profit Confidential article, Michael started warning about the crisis coming in the U.S. real estate market just as it was peaking: “The conversation at parties is no longer about the stock market, it’s about real estate. Looking around, it would be very difficult to find people who believe that one day it could be out of vogue to own real estate because the properties would be such a bad investment. Those investors who believe a dark day will never come for the property markets are just fooling themselves.”

In July, Michael told Profit Confidential readers, “The U.S. lowered interest rates in 2004 to their lowest level in 46 years. And, what did Americans do with their access to easy money? They borrowed and borrowed some more, investing the borrowed money into real estate. Looking ahead, perhaps the Fed’s actions (of lowering interest rates to entice consumers to borrow more than they can afford) will, one day, be regarded as one of the most costly errors committed by it or any other banking system in the last 75 years.”

In 2006, Profit Confidential “begged” its readers to get out of the housing market before it plunged. On August 2, 2006, Michael predicted, “I’m getting very worried about the state of the U.S. housing market and its ramifications on the economy. The U.S. could be headed for its first annual decline in home prices on record, adjusted for inflation. And, I really believe this could be a catastrophe for the U.S. economy.”

Michael was also one of the first to predict the housing bubble would decimate the U.S. economy and slip into recession. On March 22, 2007, he warned, “Over the past few weeks I’ve written about subprime lenders and how their demise will hurt the U.S. housing market, the economy, and the stock market. There’s no escaping the carnage headed our way because the housing market and subprime business are falling apart. The worst of our problems, because of the easy money made available to borrowers, which fuelled the housing boom that peaked in 2005, has yet to arrive.”

At the same time, Michael wrote that former Federal Reserve Chairman Alan Greenspan was quoted as saying, “The worst is over for the U.S. housing market, and there will be no economic spillover effects from the poor housing market.”

During the previous recession, residential construction was a major factor to recovery. Not so this time. Why? The homebuilding industry was collateral damage in past recessions. This time around, it was a major cause of the Great Recession. Over-building, brought on by over-zealous banks, easy credit, and a mountain of debt, has left the U.S economy in an extremely fragile state.

Reminding Profit Confidential readers to exit the U.S. housing market was the best real estate guidance we have ever offered. Today, we regularly follow housing prices in major American cities, foreclosure rates, interest rates, and home building stocks, not only for guidance as to where the real estate market is headed—but as guidance as to where the overall economy may be headed.

In November, existing-home sales in the U.S. declined 6.1% from the previous month. They dropped to the lowest annual pace since May of 2014, falling to 4.93 million units from 5.25 million in October. (Source: “Existing-Home Sales Lose Momentum in November as Inventory Slightly Tightens,” National Association of Realtors w… Read More

The verdict is in…
Last week, at the end of its regularly scheduled meeting, the Federal Reserve said:
1) It would continue to reduce the amount of money it creates each month. The Fed said it will be out of the money printing business by the end of this year. By that time, the Federal Reserve will have created more than $4.0 tr… Read More

According to the U.S. Congressional Budget Office, next year, the government is expected to incur a budget deficit of $469 billion and then another budget deficit of $536 billion in 2016. (Source: Congressional Budget Office web site, last accessed July 21, 2014.) From there, the budget deficit is expected to increase as far as the p… Read More

As I often harp on about in these pages; economic growth occurs when the general standard of living in a country gets better. You can’t say an economy is improving when a significant portion of the population is suffering. You can’t claim there’s economic growth when the poverty rate is increasing. You can’t say the economy is… Read More

The deleveraging that’s taking place around the world is obviously echoed in tumultuous capital markets, but a retrenchment in the bond and stock markets has been overdue for ages.
As is usually the case, several catalysts came together at the same time to produce an unsurprising stock market sell-off. These included: comments f… Read More

2015 Stock Market Outlookby Michael Lombardi

Forecasts Mar. 31, 2015

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., our concern is slower world economic growth will negatively impact revenue and earnings growth of American companies, pushing equity prices lower.

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